Nvidia’s recent earnings reports have been ruinous for options buyers

Scott Murray, an options trader who runs the Smashing Volatility Substack, just put out a great note on Nvidia’s earnings, due out after the close on Wednesday.

(For a look at what Wall Street’s expecting from the chip designer’s Q4 earnings, see here.)

One highlight: over the past 12 quarters, Nvidia’s earnings reaction has tended to be smaller than the option-implied move. Particularly the last two reports.

“Unlike Tesla which has a habit of blowing away the straddle price, Nvidia does the opposite,” Murray wrote.

What’s more, he observed, Nvidia tends to open higher the following session and then pare a chunk of those gains.

“That makes perfect sense; there are endless derivatives swirling around this thing. Which means a gargantuan amount of premium,” he added. “You know that on a spike, folks will get some call yield slash overlay their longs and yolos will sell their long calls.”

After the chip designer reported in August, it ended the week nearly at the precise point of “max pain” for buyers of options — the price at which the highest notional value of options would expire as worthless.

(For this Friday’s expiry, the $140 strike is where the most call open interest is, so that may prove a tough wall to break through and hold in the event of a positive surprise this time around.)

The options market, which had looked a little complacent about how big Nvidia’s post-earnings move would be a few days ago, has since ratcheted up its implied expectations for the reaction on this event.